Treasury Secretary Ken Henry has endorsed the timing and size of the Australian Government's latest economic stimulus plan amid warnings the global downturn will be deeper and longer than first thought.
Appearing before a Senate inquiry into the federal Government's A$42 billion ($53 billion) rescue plan, Henry saidthe fiscal impact of the package was designed to address the periods of greatest economic weakness.
He said the Government was right to act with haste in introducing a second stimulus plan.
"If one looks at the forecast growth for our major trading partners they are as weak as we've seen possibly since the 1930s." And given that forecast "there's a clear need to act now".
Opposition leader Malcolm Turnbull says the Government should not spend more than A$20 billion to boost the economy, and called Labor's package irresponsible and unsustainable.
But Henry warned that an economic stimulus package of the size proposed by the coalition could plunge Australia into recession. With a smaller package of the same profile and composition "there would be some point at which GDP growth in 2009-10 in particular might well have been negative".
Growth forecasts released last Monday predicted gross domestic product would grow by just 1 per cent in 2008-09, and by only 0.75 per cent the following year.
Henry said these forecasts were based on last year's A$10.4 billion stimulus package, the most recent measures, recent cuts in official interest rates, as well as further loosening of monetary policy.
He said the latest plan was crucial to supporting jobs.
Further deep cuts in interest rates were needed as well, he added.
David Gruen, executive director of Treasury's Macroeconomic Group, said the global recession was much worse than predicted just months ago.
"... based on a current assessment of what we think is the nature of the global recession, namely, we think it's deeper and longer than we thought several months ago."
Gruen said evidence so far suggested the original package had supported consumption, and, as a result, jobs.
